If you’ve always worked as an employee and had a relatively uncomplicated income tax return, you may wonder how much that will change now that you have a small business. It’s true you’ll have more record-keeping and responsibilities than you did when your employer sent you a Form W-2 at the end of the year.
However, being a business owner has its perks, too. You control how much time and effort you want to put into the business, and you alone reap the rewards. You can also plan for taxes and take business deductions to lower your tax bill.
Here’s how to get started.
Know which forms to use
If you organized your business as a corporation, file Form 1120, U.S. Corporation Income Tax Return, for your business. If you own an S Corporation, file Form 1120S, U.S. Income Tax Return for an S Corporation.
If you have a business partnership with someone other than your spouse, file a partnership return with Form 1065. Any partnership income or loss flows through to your personal income tax by way of Schedule K-1.
The simplest way to file a business tax return is on Schedule C, E, or F with your individual income tax return, Form 1040. File Schedule C if you are a sole proprietor. Schedule F is for farmers or fishermen. If your business income is from rents or royalties, prepare Schedule E.
You can choose to file Schedule C or F if you have a limited liability company (LLC), and you are the only member. Otherwise, file Form 1065, 1120 or 1120S based on your specific business type.
Keep up with your bookkeeping
As a business owner, you need to know at all times how your business is really doing. The only way to have sufficient information to make the best business decisions is to maintain a good bookkeeping system all year long.
Your system doesn’t have to be complicated. In fact, simple is good. You can use a bookkeeping system online or on your computer. You can also keep a simple spreadsheet, depending on the complexity of your business.
As a bonus, when you maintain business records all year, getting ready to file your taxes shouldn’t take much time at all.
Organize your information before you start
Even when you keep records all year, you still receive tax documents after the year comes to an end. Be ready for it by organizing a safe place to put the information as it arrives in the mail. Every tax form or document should go in a separate box or file from all other personal mail so it doesn’t get lost.
Prepare your return with TaxAct
Once your bookkeeping is done and you have your year-end tax documents, it’s time to prepare your return. Preparing a business return can sometimes be easier than preparing a personal one because as a business owner you’re more likely to have everything organized.
Use an online DIY tax filing solution like TaxAct to help maximize your tax situation. Go through the step-by-step questions in the product and answer each as they pertain to your business. Don’t forget the home office deduction or the simplified method for computing a home office deduction.
When you’re done preparing your return, be sure to review it. You may remember another deduction. Besides, reviewing your tax return helps you understand your business so you can plan for next year more effectively.
Don’t forget state, local, and payroll tax obligations
If you have employees, you’ve been filing payroll tax returns all year. Be sure to send your employees’ Form W-2s by the end of January. The summary of your wage and tax statements, Form W-3, is also due Jan. 31. In addition, most employers need to file Form 941, which reports how much federal income tax and FICA taxes you withheld and paid each quarter.
Additionally, if you have employees, Federal Unemployment Tax returns (FUTA) are due Jan. 31 on Form 940. If you made all your deposits when they were due, you can file Form 940 by Feb. 10.
Use Form 1099-NEC to report nonemployee compensation as required by Jan.31, plus the summary Form 1099 to the IRS.
Depending on your state, you may need to file state franchise and excise tax returns and sales tax returns as well.
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